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Untitled Essay, Research Paper

Financial Accounting For Financial Services AssignmentMoney Laundering

The word money laundering, according to the myth, is derived from Al Capone’s

practice of using a string of coin-operated launderettes in Chicago to disguise

his revenues from gambling, prostitution and protection rackets. It’s a nice

story but not true, money laundering is so called because it perfectly describes

the process of removing the stains and smells which money acquires when criminals

earn it.In this report I will go on to discuss the topic of money laundering in the

following order; firstly, I will begin by explaining what is money laundering?,

why it is done?, and how it is done? I will then go on to explain the effects

of money laundering and the institutions/organisations that are at risk from

these activities. I will also be discussing the current situation in the

UK regarding money laundering and whether anything can be done to prevent

or restrict laundering activities, and will then go on to conclude my

findings.Money laundering is the process by which criminals attempt to conceal the

true origin and ownership of the proceeds of their criminal activities. If

they are successful they can then maintain control over the proceeds and,

so, provide a legitimate cover for their source of income. J.D. Mclean defined

money laundering in the International Judicial Assistance as:”Although the proceeds of crime will be kept as capital for further criminal

ventures, the sophisticated offender will wish to use the rest for other

purposes. If this is to done without running a risk of detection, the money

which represents the proceeds of the original crime must be “laundered”;

put into a state in which it appears to have an entirely respectable

provenance”It is important to bear in mind that money laundering is a process (often

a highly complex one) rather than a single act. In an effort to expose and

analyse this phenomenon it has become common to use a three-stage model which

encompasses an ideal money laundering scheme. The three stages are as

follows:* Placement Stage

This is where cash derived directly from criminal activity (e.g. from sales

of drugs) is first placed either

in a financial institution or used to purchase an asset.* Layering Stage

The stage at which there is the first attempt at concealment or disguise

of the source of the ownership of funds.* Integration Stage

The stage at which the money is integrated into the legitimate economic and

financial system and is camouflaged with all other assets in the system.Money launderers try to prevent authorities from tracing the source of their

ill-gotten gains by moving their funds around financial and economic system.

The funds are then spent as if they were legitimate money. The more blatant

by the money launderer will directly involve a person or a business in the

crime. i.e. A launderer could simply ask someone for permission to use their

account for deposits in return for a fee. Another scenario is for the money

launderer to approach a business and ask them to set up transactions in which

a sum of money is regularly deposited in the company’s account. The business

will then send the money back as a fictitious payment for non-existent goods.

Although this method is very popular amongst the criminal underworld, there

are other ways of laundering money without a business becoming aware of being

involved in a crime. e.g. The money launderer could place an order for an

industrial machine/robot to be manufactured to a specific standard. The company

may ask for a 60% deposit with the understanding that the order won’t be

put through for three months. Before the three months are up the money launderer

cancels the order and gets the deposit refunded minus a penalty. The money

launderer will always be willing to pay the penalty because although he/she

will want to get as much back as possible, what he/she really wants is the

money back clean.Money Laundering is said to be the third biggest industry by value world-wide.

Research in the USA has shown that 90% of currency bills in circulation are

contaminated with narcotics. In the UK, similar research showed 40% to be

contaminated. In 1994, about 15,000 suspicious transactions were reported

to the National Criminal Intelligence Service’s (NCIS) economic crimes unit.

About one in five was found to have some criminal connection.In the UK the following organisations are most vulnerable to fall prey to

the money launderers:* Deposit-taking institutions

Because of the money launderers need to get rid of cash, deposit taking

institutions are particularly vulnerable to being used. i.e. Banks, Building

Societies, Post offices etc. Hence, many of the efforts to combat money

laundering have concentrated on the procedures adopted by deposit takers.* Non-bank financial institutions

The introduction of measures to prevent banks being readily used for purposes

of money laundering has, without doubt, made life more difficult by increasing

the costs and the risks for those involved. These are businesses that provide

bank-like services, but are historically less closely supervised than traditional

financial institutions. i.e. Bureau de Change, cheque cashers, money transmission

services, commodities brokers etc.The law is, as in so many areas, complex and set out in various different

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